Thursday, 27 October 2011

My question for Mr Webb at the NAPF Manchester Conference

And so to Manchester for this year’s NAPF Annual Conference. It will be my second after last year’s Liverpool event and I see that some of 2010’s star turns will return for a second show. Amongst them is Steve Webb the Pensions Minister who was praised in some quarters last year for actually knowing something about the subject. Compared with many of his predecessors it may well be the case that Mr Webb had a head start when he took the job – a former University Professor no less. But still engrained in my memory was Webb’s misleading statement at Liverpool that CPI is a better measure of inflation for pensioners than RPI. We all know why he said this, of course, and we are familiar with his argument that the exclusion of mortgage interest payments from the CPI does make it more appropriate as most pensioners no longer have a mortgage. But, as he should know, mortgage payments are just one component and other housing costs, notably Council Tax which most pensioners certainly do have to pay, are not in the CPI either. But the real source of irritation for me and others about Webb’s statement was summed up by Param Basi, the Technical Pensions Director at AWD Chase de Vere, who said "The argument that CPI is a more appropriate measure does not stand up when you consider that pensioner inflation is recognised as being higher than RPI anyway. This change will have a double whammy impact on pensioners’ real incomes."

For the Trustee trying to act both honourably and responsibly in these febrile times is extremely difficult. When a Government Minister makes a claim which is self-evidently disingenuous surely we should express our concern? As John White showed in the July “Pensions Age” the switch from RPI to CPI really does mean that for virtually all Fund members currently in employment their retirement pensions will be lower. And for deferred members who leave a scheme early the fact that their pension accrual will now use the CPI between the date of their leaving a scheme and the date of their retirement will lead to a very substantially lower initial pension as well. I have a personal rule of thumb to guide me in this and in other contentious Pensions matters. If the members of the Pension scheme of which I am a Trustee will be disadvantaged by any proposed changes then I’m in principle against them! This may sound a little precious, and my scheme is not doing it anyway, but were I to be a Trustee of a scheme which planned to replace RPI with CPI I’d be up in arms in protest.

David Willetts, Minister of State for Universities and Science and a speaker at last year’s NAPF Investment conference, has as the subtitle of his book “The Pinch” “How the baby boomers took their children’s future – and why they should give it back”. This is jokey (I think) but Willetts, who is currently ten years from drawing his own Pension, perhaps consciously reveals an attitude of mind that is prevalent in Government today. To paraphrase Harold Macmillan this attitude is that the baby boomers have “had it too good” and what wealth we may have accumulated over our forty or so years of employment is a legitimate target to attack for the Government as it tackles the deficit. A major component of that wealth for most of us is of course our accumulated occupational pension entitlement. So when a pensioner’s annual increase in a public sector or private Pension is switched from RPI to CPI it actually has the effect of reducing his wealth - and for many this offends against natural justice. The key point here is that the legislation is retrospective in effect. Throughout a baby boomer’s employment years he and his employer contributed on the assumption that on retirement he would have an inflation proof Pension generally linked to RPI. To change that may be legal – I am sure that the Government lawyers will have seen to that – but surely it isn’t right?

So what will be my question to Steve Webb at Manchester? It will be in two parts. First does he agree that the problem for all public and some private sector pensions is the abject failure of Pension providers to make adequate provision for the future over the comparative years of plenty in the 1990s and 2000s? Secondly given that failure is it fair to penalise present and future pensioners by significantly reducing their wealth? I might wear my “I agree with Nick” T-Shirt when I ask the question – but probably not!

Paddy Briggs is a Member Nominated Trustee of the Shell Contributory Pension Fund. He writes in a personal capacity.

Paddy Briggs

September 2011